Sale at an undervalue; time for presenting a petition; implied term avoids manifest injustice; complying with time limits; order for sale threshold; Wragge & Co's finance litigation experts bring you the latest on the cases and issues affecting the lending industry.

Sale at an undervalue

In Butterfield Bank (UK) Ltd v Philip and others, the bank sought summary judgment against four guarantors of a bank facility. It was alleged that the bank had sold a property at a £500,000 undervalue.

The High Court had to consider whether the bank had breached its duty to sell the property for the best price reasonably obtainable. The evidence showed that the appointed receivers had obtained proper professional advice in achieving a sale figure that was consistent with the valuation advice given. The bank had been advised to complete certain building works on the property but in a different way, and at considerably more cost, than the defendant had originally envisaged.

However, it had continued to seek professional advice throughout on the valuation of the property. The defendant was unable to produce evidence to show that the property had been sold at an undervalue, let alone an undervalue of £500,000, and the bank's evidence showed it had taken professional advice throughout.

Things to consider

The taking of professional advice on valuation at the outset, as well as throughout the sale procedure, will assist a lender in defeating claims of sales at an undervalue should the property not sell quickly. Where properties are unusual, or building projects need to be completed, this requirement is even more important. In such situations, comparable properties may not be so readily available to show what an appropriate sale price was.

Time for presenting a petition

A creditor can present a petition immediately following the dismissal of an application to set aside a statutory demand if the order dismissing the application does not give a specific date for presentation.

This was the finding of the High Court in Darbyshire v Turpin and Philips in which a bankruptcy order had been made against Darbyshire. His earlier application to set aside the statutory demand issued against him had also been dismissed. No date was given at that hearing concerning when the bankruptcy petition could be presented as per the Insolvency Rules 1986 r6.5 (r6.5). These rules provide that:

"If the court dismisses the application, it shall make an order authorising the creditor to present a bankruptcy petition either [as soon as reasonably practicable], or on or after a date specified in the order."

The petition was issued the day after the hearing of the dismissal of the statutory demand. Darbyshire was not present at the subsequent hearing of the petition at which he was adjudged bankrupt. The judge had not dealt with the alleged procedural defect pursuant to r6.5, but had noted that Darbyshire was not present and had not filed a statement of truth. The judge had also summarily dismissed Darbyshire's assertions that he had cross-claims which could extinguish the debt and refused his application for an adjournment.

Darbyshire appealed, alleging the procedural defect made the petition flawed and the order should not therefore have been made. He argued he should also be allowed to adduce evidence on his cross-claim.

The court held that the purpose of r6.5 was to allow a debtor to ask for more time to pay the debt, or reach a compromise, before the petition was presented. In the absence of a request for more time to pay, the default position was to authorise the presentation of the petition immediately. Rule 6.5 did not prevent this if a date for presenting the petition had not been specified in the order.

However, in allowing the appeal, the court held that the judge should have considered if there was any prospect of Darbyshire successfully establishing the cross-claim and that required evidence to be adduced. The matter was remitted back to the County Court for directions to be given for the filing of evidence.

Things to consider

If a debtor has not asked for additional time to pay, there is no reason for delaying the issue of the petition following the dismissal of an application to set aside the statutory demand. The petitioners here had done nothing wrong in being quick off the mark, although the debtor survived to fight another day on his cross-claim.

Implied term avoids manifest injustice

In Swallowfalls Ltd v Monaco Yachting & Technologies SAM, the parties entered into a construction agreement whereby the defendant (M) would construct and sell, and the claimant (S) would buy, a yacht for 35 million Euros. It was to be financed by a loan facility between the parties whereby S would provide M with a loan of 38 million Euros. The parties agreed that when a milestone in the construction of the yacht was reached, the associated instalment payment was achieved and a repayment of the corresponding amount was deemed made under the loan.

M commenced arbitration proceedings when S failed to confirm the achievement of various milestones, or countersign stage certificates, which meant the loan amounts could not be considered as repaid. S then gave notice requiring immediate repayment of the loan, as it was entitled to do under the loan agreement, and obtained summary judgment. The amount due under the loan fell to be determined.

The defendant argued that there was an implied term in the loan agreement that S would not, in breach of the construction agreement, prevent or delay M from repaying the loan. S was in breach of that implied term by failing to agree when milestones had been achieved, and that the damages arising from the breach should be set-off against the sums due under the loan.

The High Court agreed that the loan agreement contained the implied term alleged by M. While it was worded so as to enable S to call in the loan at will, the implied term precluded S from interfering with M's ability to repay the loan in the manner contemplated in the agreement, i.e. by achieving the various milestones. The primary method of repayment agreed between the parties was by the intended course of achieving milestones. Further, the parties would only have agreed that repayment method on the basis that S would not impede it.

The court held it would be manifestly unjust to allow S to enforce payment under the loan facility without taking into account M's claims under the construction agreement. The court stayed the proceedings against M until the arbitration proceedings had been concluded.

Things to consider

It would have been unjust to the defendant for the court to have looked only to the terms of the loan agreement without also taking into account the construction agreement. The latter was the reason why the loan had been entered into.

Complying with time limits

Where a claimant fails to serve proceedings within the time limit specified and does not have a good reason for failing to do so, the court can set aside a without notice order obtained to extend the time for service.

This was the position in Euro-Asian Oil SA v Abilo (UK) Ltd and others. The claimant had issued proceedings within the jurisdiction to prevent one of the defendants issuing in Romania. The claim form was then served on two of the three defendants with the third being sent a copy of the claim form, but not by way of service. The claimant subsequently decided to amend its claim and allow the current claim form to lapse and then issue fresh proceedings.

However, the defendants who had been served acknowledged service and the claimant decided it could not let the claim simply lapse. Therefore, a week before the time period for service expired, it obtained a without notice extension of time to serve the claim form out of the jurisdiction on the third defendant.

The third defendant sought to set the extension of time aside. The claimant argued it should not be set aside as the claim was not time barred and the third defendant had already received a copy of the claim form.

The High Court, in setting aside the extension of time held that the procedure for extension of time to serve a claim form was strict. There was no rule that, in the absence of a good reason for the delay in service, the court would nevertheless grant an extension of time where no limitation issue arose and the defendant had received a copy of the claim form.

Here, the claimant had spent the six month service period attempting to persuade the two defendants it had served to instruct solicitors to accept service, put forward a substantive defence or make an offer of settlement. None of those activities were deemed good reasons for the delay by the court. Neither was thinking up different causes of action before finalising the particulars of claim or service of the claim form. The claimant was entirely responsible for the delay, including the deliberate decision not to serve all the defendants at the same time or before the end of the six-month service period.

The court found that not only was there no good reason for the delay, but the reasons given were bad reasons. The extension of time for service was set aside.

Things to consider

Although this case related to service out of the jurisdiction, the same reasoning would apply to service within the jurisdiction which has a shorter, four-month, time period. The court will only exceptionally grant an extension of time where there has been very good reason for the delay.

Order for sale threshold

The Charging Orders (Order for Sale: Financial Thresholds) Regulations 2013 (Regulations) will come into force on 6 April 2013. These regulations confirm the financial threshold for the enforcement of charging orders by way of an order for sale in cases where the charging order was made to secure the payment of money owed under a regulated agreement under the Consumer Credit Act 1974.

The threshold is set at £1,000. This is so that a charging order in such a case may not be enforced by way of an order for sale where the amount owing (including interest but not including any fees or charges of the application to enforce) is less than £1,000.

These Regulations and the threshold referred to have been deemed necessary in order to ensure that charging orders are not used to secure payment of disproportionately small judgment debts and that repossession is always the last resort.

Things to consider

These regulations do not have retrospective effect. Therefore, a charge imposed by a charging order can still be enforced by way of an order for sale to recover a sum which is less than £1,000.00 if the application for an order for sale is made before 6 April 2013.